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What is an assumable mortgage?

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With the unforeseen mortgage interest rate hikes, many buyers of both residential and commercial real estate cannot afford what they could afford last year. For residential buyers, their buying power has diminished as their monthly payments increased substantially and home prices have not dropped enough. For investors looking to find a deal, it is almost impossible to achieve. Interest rates are as high as cap rates, leaving little to no cash flow, and in some instances even negative cash flow. 

A solution for this dilemma is an assumable mortgage. An assumable mortgage is a mortgage that has an assumption clause in the contract stating that another party can take over the same terms as the initial buyer did. This means that if your mortgage is 3.5% for 30 years the new buyer can take over that exact same mortgage amount, interest rate, and term years.  If someone locked in a great rate, they can now sell their property and let the new buyer assume the mortgage with the same interest rate. However, they can only assume the balance of the existing loan. If you are selling the property above the loan amount for a profit, the new buyer will either have to come up with the cash difference or get a second mortgage. 

You will have to look through your mortgage documents to make sure your loan is assumable and the new buyer will have to be approved by the lender to assume the mortgage just like a regular mortgage transaction. These assumable mortgages function both in residential and commercial loans as long as the clause is in the contract.

Ready to begin your home buying journey? Get started with DV Real Estate Group today.

Stephanie
Author: Stephanie

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